Part 2 A small local blood bank has been trying to support the needs of the community, and has processed over 30% more blood than had been originally planned for the month. The following is a cost control report. Blood Bank Cost Performance report For the Month ended April 20XX Actual Budget Variance Liters of blood collected 520 400 120 Variable Costs: Medical Supplies Lab Tests Refreshment for Donors Administrative supplies $ 8,500 $ 8,000 $ 6,800 6,000 1,200 1,100 500 450 17,000 15,550 500 U 800 U 100 U 50 U 1,450 U Total variable costs Fixed Costs Staff Salaries Equipment Depreciation Rent Insurance $10,000 $10,000 2,820 2,780 1,000 1,000 540 530 14,360 14,310 31,360 29,860 0 40 U 0 10 U 50 U 1,500U Total Fixed Costs Total Cost The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergencies in the community. The managing director has heard that you just finished a course that discussed flexible budgets. He has asked you to assist him in developing a flexible budget that will show his superiors that he has controlled costs in most areas. Required: 1. Prepare a revised budget for April using the flexible performance approach. You need to use cell reference to calculate the variance. You must designate a variance for each cost category and for the total cost: U or F. The variable and fixed cost labeling has been set correctly, so do not change this around. 2. Comment on how you developed this revised report and what it means. 3. Identify variances in the report you prepared that should be investigated? Explain in detail why these variances should be investigated. Solution: Required: 1. Prepare a revised budget for April using the flexible performance approach. You need to use cell reference to calculate the variance You must designate a variance for each cost category and for the total cost: U or F. The variable and fixed cost labeling has been set correctly, so do not change this around. 2. Comment on how you developed this revised report and what it means. 3. Identify variances in the report you prepared that should be investigated? Explain in detail why these variances should be investigated. Solution: Blood Bank Revised Cost Performance report For the Month ended April 20XX Actual Budget Variance U or F Liters of blood collected Variable Costs: Medical Supplies Lab Tests Refreshment for Donors Administrative supplies Total variable costs Fixed Costs Staff Salaries Equipment Depreciation Rent Insurance Total Fixed Costs Total Cost 2. Comment on how you developed this revised report and what it means. You must explicitly explain how you computed the numbers in the revised cost control report. 3. Do you think any of the variances in the report you prepared should be investigated? Why? Do not answer that no variances should be investigated, since the Blood Bank is concerned with safety issues that might be impacted by changes in cost
